Bank fraud is the act of using unethical or illegal means to obtain money held by a financial institution. Bank fraud is not only committed by bank representatives, but also their partners, customers, completely unaffiliated parties, or any combination of these demographics working collaboratively. Bank fraud costs the global economy billions of dollars each year, affecting both developed and undeveloped nations alike.

Most common bank fraud related scams and schemes

(source https://en.wikipedia.org/wiki/Bank_fraud#Types_of_bank_fraud)

Remotely Created Cheque Fraud

  • Remotely created cheques are orders of payment created by the recipient and authorized by the customer remotely.
  • These cheques are not signed, but instead bear the statement “Authorized by Drawer”. This lack of signature makes remotely created cheques highly susceptible to fraud.

Bill Discounting Fraud

  • Bill discounting fraud is a scheme in which the perpetrators trick a bank into believing they are a profitable and reliable customer.
  • The scammer will develop a longstanding relationship with the bank until they have gained sufficient trust, at which point the bank will begin floating the customer more money.
  • When the money being floated to a scammer by the bank is sufficiently large, they will disappear completely.

Cheque Kiting

  • Cheque kiting exploits the delay in balance reconciliation between bank accounts.
  • When a cheque is deposited it is immediately available in the depositors account, however the money is not immediately removed from the issuers account, meaning the funds can be withdrawn from both accounts.

Forgery and Altered Cheques

  • Fraudsters can alter names to make cheques payable to someone else or the amount listed on cheques.
  • Instead of tampering with a real cheque depositors may alternatively forge a depositors signature on blank cheques, or even print their own.
  • By the time banks learn of a fraudulent cheque being deposited in their system, it is usually too late and the fraudsters are long gone.

Fraudulent Loans

  • In a fraudulent loan, the borrower is a business entity controlled by a dishonest bank officer or accomplice, the borrower then declares bankruptcy or vanished and the money is gone.

Fictitious Bank Inspectors

  • Impersonation of officials has become a popular way among criminals of stealing personal information for use in theft or identity fraud.
    -Fictitious bank inspectors will often ask for an initial payment from the victim, in order to unlock a larger sum of money that the victim is allegedly entitled to.

Payment Card Fraud

  • Fraud committed using credit or debit cards that are obtained through unlawful means.
  • Credit card fraud is commonly associated with identity theft, where the perpetrator harvests personal information on a victim and uses their identity to have a new card issued.

Phishing and Internet Fraud

  • Phishing operates by sending fraudulent emails to the public, often impersonating a legitimate institution.
  • The email typically requests sensitive personal information from the recipient as a means of committing further fraud, such as identity theft, or payment card fraud.

Rogue Traders

  • Rogue trading involves a trader at a financial institution who is engaging in unauthorized trading in attempt to recoup previous losses.
  • Internal controls are manipulated to avoid detection and buy more time.

Wire Transfer Fraud

  • The problem with wire transfers is once are made, it is very difficult or impossible to reverse.
  • There is a very high risk of fraud when dealing with unknown or uninsured institutions.
  • Since it can take several days to process a wire transfer, any funds that are sent can still be withdrawn by the sender in the time between when the payment was initiated, and when it was processed.

Accounting Fraud

  • Fraudulent bookkeeping to hide serious financial problems.
  • Can be used to make an organization appear to be a more attractive an opportunity to investors than it really is.

Demand Draft Fraud

  • Demand draft typically involves one or more bank employees writing fictitious demand drafts, which are typically drawn payable at an institution in another city.
  • Since the demand draft can be cashed without debiting an account, these frauds are typically not discovered until head office does a branch wide reconciliation, which can take months to complete and the money is usually gone by the time the anomaly is discovered.

Uninsured Deposits

  • A bank soliciting public deposits may be uninsured or unlicensed to do so.
  • Customers at uninsured or unlicensed banks have a higher risk of deposit loss or theft, and are generally not entitled to any compensation as would be the case with insured deposits.

Duplication or Skimming of Card Information

  • Skimming ranges from merchants copying client card numbers for later use, to sophisticated card readers attached to public ATM’s used to record customer data.
  • This harvested data can be used to produce duplicate cards.

Forged or Fraudulent Documents

  • Often used to conceal thefts or management error resulting in loss.

Fraudulent Loan Applications

  • Fraudsters may falsify information to hide poor credit history.
  • Corporations and businesses may use fraudulent accounting to overstate profits or understate losses in order to lower their perceived risk profile when applying for a loan.

Empty ATM Envelope Deposits

  • A fictitious or misrepresented deposit can be made at an ATM in order to obtain more cash than is available in an account or on a cheque.
  • These types of fraud typically take days or weeks to detect, at which point the scammers have had an opportunity to withdraw all of the money before a bank discovers the overdraft.

Money Laundering

  • Process in which large amounts of illegally obtained money is given the appearance that it was legally obtained.

Booster Cheques

  • Fraudulent cheques used to make payment on a credit card in order to raise the credit limit.
  • Since there is a time delay between the time the cheque is passed and when it is processed, perpetrators of these schemes could have already maxed out the card to it’s new limit before the cheque bounces.

Prime Bank Fraud

  • International fraud scheme in which the fraudster claim’s to have a secretive means of acquiring “bank guarantees” at a discounted rate.
  • Fraudsters will promise unreasonable returns on investment, claiming the ability to buy and sell these “bank guarantees” using high frequency trading to produce gains. When in reality the whole operation is typically a front for a more simplistic ponzi or pyramid scheme.

Stolen Cheques

  • Fraudsters target organizations or facilities that process a large volume of cheques, in an attempt to steal cheques and fraudulently cash them.
  • Fraudsters may also gain access to blank chequebooks and forge seemingly legitimate signatures on the cheques.